I have updated this post recently due to a meeting I took with an early-stage founder who had yet to launch, but was diligently working on creating a 100 page business plan… hopefully, this post should help founders avoid that kind of mistake.
Let’s face it, most investors don’t have time to read anything more than the executive summary of anything that is sent to them.. So, should you even bother writing a business plan? What should one look like? And what may it say about you?
First let’s start defining what a modern day ‘biz plan’ could look like – I’d say that if you can take your pitch deck and add to it the necessary text so that whomever reads it can figure out what your business is about without you having to speak to it, then you’ve hit the essence of it.
A modern ‘ biz plan’ doesn’t need to be as complicated as you think (early stage plans are clearly simpler vs later stage ones where the company has scaled operations and profits). The purpose of a “biz plan” is to help you in crafting your business as well as provide those investors that do take an interest with further ‘meat’ to evaluate your company after meeting you, but the days of the lengthy ‘formal business plan’ have long since passed. No one has the time to read them anymore, and for those investors that demand them… well, perhaps ask them which areas they’d like more meat on and you can deal with them on a case by case basis if you need to.
So if the old style has fallen out of favor, what now? From Guy Kawasaki‘s ‘Art of the Start‘ to Business Plans for Dummies there are plenty of books out there on what constitutes a good business plan / pitch deck… but what is the point of a business plan in the first place? Shouldn’t you just ‘get on’ with doing your business and worry about that business stuff later? Perhaps… but it does help to at least identify some of the key things that are typically covered in a ‘plan’, such as what is your market and who are your competitors… A company’s business plan, no matter how short it is (10 slides), is useful for investors to evaluate an opportunity, and it also offers value to the founders preparing it, to help them articulate the core concepts of what their product is, the market it addresses, the size of the opportunity, the team, and the investment proposal.
Remember, a “biz plan” is about helping you organize your thoughts and then being able to convey them clearly to someone else, not about meeting some magical quota of pages with graphs and charts (although depending on the complexity of your proposition, this may be necessary).
Generally speaking I have found a company’s “plan” has allowed me to determine:
1) The company’s communication style and ability to articulate what they (their product or service) do, clearly and succinctly. Does the company rely too much on buzz words and/or comparisons to get the point across, or is it clear in articulating its objectives and vision? Is the plan well written (grammar)? Do I walk away from reading it being able to describe the opportunity in simple terms to others? How do they use visuals? What style are they?
2) The company’s ability to research their market size, competitors, and key industry players, distribution channels, etc. If a company has not adequately researched the size of their market, this can be a real deal-killer. One time I had a company come and speak with me about what they were doing. Whilst originally really excited about the potential of what their product could do, upon further probing during our meeting, they concluded that the market size was only few million in sales world wide, for the whole industry. As you can imagine, realizing the size of your market size during an investor meeting is probably not the best way to make an impression. Understand your target market.
The identification of key competitors is also an important detail to include and can actually play to your favor if you can clearly articulate how you differentiate from them. In the case of some companies, where distribution channels and key partnerships are important, identifying these and discussing them is important in providing potential investors with confidence that your team understand the challenges inherent in its industry.
3) The company’s ability to analyze their cash needs and expectations for growth. Nothing is more scary than a company whose ambitions are huge, but whose idea of cash management is not in line. You don’t need a CFO, but you do need to have thought out what key costs grow with your ambitious growth and when are the crucial cash-points are for your company. Generally speaking, investors don’t have financial discussions on the very first meeting, but if you have an understanding of your cash uses, this will make you seem far more competent.
4) The completeness and experience of the company’s team. Read my post here on how an investor evaluates your team, suffice it to say that if you have a great team, highlight their accomplishments. If you know you need to hire someone to round out the team, it’s OK to put that down as a future hire.. at least it’ll make the investor know that you know there is a weak-point in the team that you plan on solving as soon as the investment comes in.
Articulating all these points allows founders to justify all the components of a business model to themselves before really investing further in an idea. During the writing of your plan, you may find that the business model changes or even the industry focus changes to avoid some risks that you identified early on.
Now, a couple of tips… the first one being, avoid putting a valuation on your deck / plan (unless you are finalising a round). Investors may ask you this figure in person, but you are likely to prevent a future dialog if you put the valuation on paper and it is either too big or too small for the investor. By omitting it, the investor focuses on what matters: what you are trying to build and then opens up the dialog for the economics of your company once the investor is ‘hooked’. The second tip is that a cap table can be a handy thing to include in your business plan (but perhaps you won’t have space to include it in a presentation). This is useful mostly for subsequent discussions, but can greatly help the investor to understand everyone’s motivations.
In conclusion, one of the best things you and your team members can do very early on, is co-draft this pitch deck / plan, no matter how simple, that you feel can represent your company without requiring your physical presence to get the value of your opportunity across. It should, at the bare minimum (even if slides or doc), include (not necessarily in this order either):
1) An overview of who you are and what you’ve done (basically, why you and your team can make this happen..)
2) A succinct explanation of what your product/service does, screenshots if possible.. run it past a non-techie friend and see if they can explain it back to you
3) A market overview section, the market size of your opportunity, key players, competitors, partnerships, target market, etc.
4) A snapshot of your financials (which in an early stage startup will be your expectations of cash usage), if preceding a physical meeting, a cap table would be useful. If your business is about growth first, then clearly show your potential investors how much money you will need to grow it to where it hits the tipping point.
Hope this helps!
- The Difference Between a Business Plan and Planning (blogs.constantcontact.com)
- April 18, 2011 Business Plan: A roadmap to you, Necessary for Loans (learnedatscore.wordpress.com)
- Tips for writing a business plan (premierlinedirect.co.uk)